Since an unfortunate vestige of mutual fund sales material is: you need to invest for the long-term. and That it is OK if your investments are going down because these are long-term investments. These phrases and beliefs destroy portfolios and compounded returns.

To me, investing is simply day-trading in slow motion. In my view, when people dont have an investing plan they use the excuse, Im investing for the long-term. But, I find that all the successful trading rules that apply to a professional currency trader with a leveraged $250 million position also apply to someone with $25 in a mutual fund. If the mutual fund owner calls it investing, he thinks he is immune from all the decision-making required of all ownership; ignoring the fact that every structure require maintenance.

Lets take a closer look at maintenance; look at a home everything but the dirt needs to be maintained. Time, weather, and events take their toll on the floors, appliances, roof, windows, landscaping, etc. The same rules apply to owning a rental home. And the same rules apply to owning a strip mall, or an airport or manufacturing plant. The same rules actually apply to every business; the building, the equipment, the employees, the vehicles, the marketing plan, the product design, and the websites. Now if investing or trading is a business (or you are trading or investing in businesses) what makes you think your portfolio doesnt need to be maintained just like everything else? I am here to tell you that it does need to be maintained. In spite of long-term investing theories and cautions from your stockbroker or magazine headlines, most of the time you spend on investing would be considered maintenance.

How I define maintenance is continued review, evaluation, and action in alignment with your investing goals. Now the maintenance that they need is continual review. Is it meeting your expectations? Maintenance means information review: changes to your market view, interest rates, inflation, recession, the industry, a new federal law, an inter-country trade dispute, etc. Maintenance also means portfolio review. For example, , if a run up in real estate has unbalanced your portfolio, you may want to sell off weaker real estate holdings or, instead, sell off the strongest real estate holdings if the market prices are starting to fall back. Maintenance is also the mechanics of setting up alerts if a stock has fallen too far and you want to place a stop-loss order to get out, or an alert for a profit target that is about to be reached. Maintenance could simply be a monthly review to evaluate whether the stock is still above its 200-day moving average price.

Whatever the manner you want to address investment and portfolio maintenance, you need to start building your own trading rules, checklists for what to do before you enter a trade, and what could possibly trigger your exit of a position. Keep a journal to see how your rules are growing your account to notice which of them needs to be changed, eliminated, or updated. All of this is the maintenance required for the $25 mutual fund investment so that it doesnt become a $0.25 investment from neglect.

To the axiom: A fool and his money are soon parted, I would add this corollary: An amateur investor and his long-term investments are soon parted. Amateur investors that are not willing to perform the ongoing duties required to grow their investments rarely perform well. While a professional trader who carefully analyzes and executes his trading rules can count on the continued successful growth of their portfolio.

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Avery Horton The Rumpled One is a traders trader who makes a great income day trading a very simple day trading method called fading the gap.

If you could trade a method that took you less than 30 minutes to perform in the morning for $0.30 to $1 profit with 80% accuracy.would you trade it?

When you can trade 1,000+ shares in a stock that is $300 to $1,000 profit on each successful trade EVERY DAY.

Here are some of the emails I have received from Avery recently:

1) See all the gaps that have filled within 30 minutes

2) Even where the gap hasn’t filled, there’s money to be made
What I mean by statistics is how many times during the last 100 days a stock has gone up at list $.10, $.20, … $1.00 or more from open to high:

Mark, I like to keep things simple… 1000 shares * $.12 profit / share = $120. After commissions, I net $100. Basically, this is a $100 bill printing press.

-Avery

See all those filled gaps?!?!?!

You would have made over $1.00 per share on every trade! The QQQQ doesn’t count, I just use it to gauge the market. But it, too, filled the gap…LOL!

Compare the middle indicator to before… see how much trading each cross can net you?

It really is simple, Mark. I think you can “feel” it… can’t you?

- Avery

Hi Mark:

1) Let’s say a trader starts with $25,000 and trades 1000 shares. If the trader nets $100 a day pretax on ONE TRADE, with 22 trading days a month that’s $2,200 in about 30 minutes or less per day.

Ok..thats enough for now. I have picked The Rumpled Ones mind clean over the past week nailing down his fade the gap method. I am actually amazed he gave away so much information so freely.

So get you FREE Fade The Gap Day Trading Method Now by entering your name and email address. You will need to read your email address in order to go to the download page and access the method.

Get it now and start milking those daily profits tomorrow.

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Is it really possible to make a living as a day trader?

This question is asked over and over and over again by normal, ordinary people. The answer is simple: Yes, it is DEFINITELY possible! And, better yet, you yourself can do it! Sometimes people dont believe me when I say that they can become successful, full-time day traders, but its true. And Im going to prove it to you right now.

Before we get started, I need you to ask yourself one very important question: How much is a living? Many people want to be rich, but they fail to quantify what rich means to them. Are you rich if you have one million dollars? Maybe so, but if you told Donald Trump that he had one million dollars in his bank account, hed wonder what had happened to the rest of it! One million dollars to Donald Trump equals broke!

How to Make $150,000 Per Year
Since I dont want to get into a deep discussion about how much money is a decent living for you, lets just assume that you would be pretty happy if you were making $150,000 per year, and lets say that you are making this money with your trading. Does that sound reasonable?

Lets break it down: $150,000 per year would be $12,500 per month, or, if you prefer, $3,000 per week. This is assuming that you are taking two weeks of vacation per year.

So, would you like me to tell you how you can make that imaginary figure of $3,000 per week that $150,000 per year into a reality? Because I can. All it takes is smarts and strategies.

Start Small Set a Weekly Goal for Only ONE Contract
When day trading futures, options, or forex, you can use leverage and trade multiple contracts on a rather small account. If you are thinking about trading the futures market, then you can easily find a broker who will enable you to trade one contract of almost any futures instrument that is our there such as e-mini S&P, e-mini Russell, currency futures, interest rates, commodities, etc. on a $2,000 account.

I teach my students to set a weekly goal of $300 per contract. So, if you want to make $3,000 per week, then you need to trade ten contracts. Its possible that your broker might agree to let you trade ten contracts with $20,000 in your trading account, but if he wont or if you dont have $20,000 in your account at the moment dont worry. Just stick with me, and Ill show you how to get there.

How to Achieve Your Weekly Goal
The key element to trading success is having a sound trading strategy, and it must be one that works effectively in a variety of markets. You will dramatically increase your chances of success in trading if youre able to trade in multiple markets. Now, understand that when I say multiple markets, I do NOT mean different types of currencies! This is a common misconception. What Im talking about is TRUE diversification, which means watching the two U.S. Stock Index markets, one or two currency markets, commodities like the grains, interest rates, and/or a foreign index market, all at the same time. Here at Rockwell Trading Inc., we teach our students to watch six different markets every single day.

Another obvious key factor is profits; to achieve your weekly goal, youll ideally have a high average of wins per trade. It goes without saying that your average win should be at least 50% higher than your average loss, preferably even twice as high.

The strategies that I use and teach call for a profit target of $300 per contract and a stop loss of $200 per contract. Youll notice that the profit target is greater than the stop loss. Thats the beauty of it: all youll need is one win, and youll have achieved your weekly goal of making $300 per contract. ONE WIN!

Just as an FYI, this is why scalping is so much more difficult. Most scalpers try to make $10 – $20 per trade, so you would need 15 30 wins per week to achieve your weekly goal. Which do YOU think is easier? Making one profitable trade or trying to make 15-30 profitable trades?

Sounds Good, But What About Losses?
As everyone in trading knows, losses are a part of the business, and you cant avoid them. If thats something you have trouble accepting, then youre in the wrong industry. However, theres a huge difference between losing big on a regular basis and losing small in a controlled trading plan. Our trading strategies assume a certain amount of loss, and we prepare our students accordingly. You already know that you should keep your losses small; we simply teach you how to keep them smaller that your average wins.

Lets go back to the scenario I mentioned above: you have a trading strategy that produces $300 in profits for every win and costs you $200 for every loss. Now, if your weekly goal is $300, and if your first trade was a loss of $200, then you need to make two winning trades to achieve that weekly profit goal.

Let me take this a little farther and actually break it down for you: youve lost $200 on your one losing trade, and then you make $600 on your two wining trades ($300 each). Your net profit = $400. Goal achieved. Its as simple as that.

Of course, youre not always guaranteed a week with only one loss. Lets look at a week that started off with three losses. With three losses, you are now down $600 ($200 each). So, how many wins do you need to have before you achieve your weekly profit goal of $300? Three wins. Just three wins will result in $900 ($300 each). Subtract the $600 you lost on the losing trades from the $900 you won on the winning trades, and your resulting net profit is $300. Goal achieved. Again, simple as that.

Wait A Minute Youre Saying That I Will Achieve My Goals
With a Winning Percentage of Only 50%?
YES! Thats exactly what Im saying! Read the example above again: you lost $600 on three losing trades, made $900 on three winning trades, and came out with a net profit of $300. This means that you could pick a losing trade every other time and STILL achieve your weekly profit goals!

It gets even better: lets just assume for a minute that you do end up achieving an actual winning percentage of only 50%. Now, when you start trading again on Monday morning, what are your chances of having a winning trade? Since weve already established that you make $300 per winning trade, and since $300 is your weekly profit goal, your chance of achieving that goal after only the first trade on Monday is also an overwhelming 50%! You have a one in two chance of meeting your weekly profit goal in just one, single trade!

So if you DO achieve your weekly profit goal on the first trade Monday morning, what next? Stop trading for that week! Just enjoy life! It doesnt get better than that! Remember, you need to stick to your trading plan and your weekly goal. Do NOT enter into another trade once youve already achieved your weekly goal; the chance that your second trade may be a losing trade is too great, and you would be giving your money and profits back to the market. Overtrading and greediness are a traders downfall, so resist them and stick to your strategies.

How to Increase Your Winning Percentage
Ive just proven to you that you can achieve your weekly profit goal with a winning percentage of only 50%. But wouldnt it be wonderful if it was possible for you to boost your winning percentage to 60% instead, or even 65%?

Well, it IS possible, and heres how to do it:

Be picky. Seriously, when it comes to trading, being picky is actually a VERY good thing. Dont take the first trade you see just because it looks decent. Analyze your possible trade. Make sure that it fits ALL of your entry conditions and parameters.

As I said previously: you should be watching six different markets. Lets assume that you have a trading strategy which gives you one entry signal in the first two hours of trading. This would result in up to six entry signals per day, since you are watching six markets. Six entry signals per day add up to 30 entry signals per week.

Now, of course, there will be some days when youll only have 1-2 entry signals in the six markets; however, the chances are high especially if youre watching uncorrelated markets that youll get at least two entry signals per day, or ten entry signals per week.

Pay attention to your entry signals, and rely on them. You already know that youll meet your weekly goal with just one winning trade, so be patient. If there are no good trades on Monday, then simply wait until Tuesday. The same goes for the whole week. Dont push it! Wait until the market is ready to be traded. It WILL happen.

Waiting for YOUR trades on YOUR terms WILL increase your winning percentage. By skipping the trades with so-so entry signals, by taking only the best that the market has to offer, youll be on the right path to solid profits and success. Thats how it works.

Full Circle How to Make $150,000 Per Year
A quick recap: the first step towards financial success is to define your weekly profit target. Next, you need to find a reliable, straightforward trading strategy that will help you achieve your profit goal. When you enter into a trade and your trade hits either your profit target OR your stop loss, exit that trade immediately. Stick to your trading plans and strategies until you achieve your weekly profit goal, and then give yourself a rest until next week.

If youll think back to the case I gave at the beginning, in order to make $150,000 per year assuming a 50-week year and two weeks of vacation youd need to make $3,000 per week. At a $300 profit per trade, this means that you would need to trade ten contracts. Of course, this illustration can be applied to various amounts. If you wanted to make $225,000 per year with a weekly profit target of $300 per contract, for example, then you would have to trade 15 contracts, and so on, and so on.

If you dont have a trading account that lets you trade the amount of contracts that Im talking about yet, then now is the perfect time to start building it. Remember, be patient with your trading, be smart, slow, and steady. Trading success doesnt happen overnight, but with the right strategies and structure, you can achieve profitable results in a much shorter time period than you may have thought possible.

Plan your trades and trade your plan. THATS how successful traders make money.

I rest my case. J

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Many of these stock daytraders used methods to scalp the market for a few penny. Using the e-mini S&P they suddenly had a much higher leverage, paying less commissions, and their methods were extremely profitable.
Unfortunately, these scalping methods kill an intraday trend almost instantly, making almost every trend-following approach fail.
Another reason for the dramatic change of the market was the introduction of the automated online daytrading strategy execution in TradeStation. In 2002 TradeStation’s customers who were using this feature increased by 268%. Overbought/Oversold strategies became very popular and when the market made an attempt to trend these online daytrading strategies immediately established a contrary position.
Conclusion
When backtesting you need to know these things. It’s not enough to just run a system on as much data as possible; it’s important to know the underlying market conditions.
In non-trending markets like the e-mini S&P you need to use trend-fading systems, and in trending markets like commodities you should use trend-follwing methods.
And that’s when clever backtesting helps you:
If your backtesting tells you that a trend-following method worked in 2000-2002, but doesn’t work in 2003 and 2004 then you should not use this strategy right now.And vice versa: When you see that a trend-fading method produced nice profits in 2003, 2004 and 2005, then trade it.
I haven’t yet seen an online daytrading strategy that works in all market conditions: trending and non-trending. Usually a strategy works very well in ONE market condition (e.g. trending) and produces small losses in the OTHER market condition. That’s why you need to alter daytrading strategies.
And THAT’S where backtesting can help you.

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Is day trading penny stocks really a wise move for your investment activity? Many people are wary of this activity, and with good reason. While you certainly do hear the glamour stories of the many investors whove made fortunes with penny stocks, you often times dont hear about the thousands whove lost a ton of money in the process.

Penny stocks are notorious for enabling you to make either huge gains or losses overnight. Many people hear stories about somebody who made a million dollars in a couple days day trading penny stocks, and become so enamored with that they dont realize these same investors (gamblers, really) most often lose all that money soon after.

Believe it or not, penny stocks are nothing more, nothing less than glorified gambling. Yes, there are some investors who can make a lot of money with this avenue, but only if they are absolutely sure of what they are doing. The reason for their volatility is simple: every one of these companies that are trading for les than $1 per share got into the situation for a reason.

Usually, it was either bad management, poor economics, or a combination. Therefore, youd better have a good reason for thinking a turnaround is about to occur before laying your money down.

The main reason day trading penny stocks is so risky is that it doesnt take much to affect your investment. For instance, if you buy in at .25 cents, and the stock goes up to .50 cents, youve just doubled your investment just by a .25 cent gain! Of course, the same risks apply for it going down.

While a .25 cent swing for most stocks would be hardly noticeable, for penny stocks they can be either mega profitable or suicidal. Therefore, if you do plan on entering the exciting, non-stop action world of penny stocks, you need to be absolutely sure you are an expert at looking at a company and spotting a turnaround possibility.

Think about this: most of the worlds top investors have gotten to the point they are at by investing in good stocks that have exhibited a long term of profitability. When you invest in penny stocks, you voluntarily take yourself out of that realm and focus only on companies that have proven they cant turn a profit. Yes, sometimes miracles or turnarounds do occur, but not very often.

If you do plan on entering this world of day trading penny stocks, you need to become an expert at spotting companies you are sure will turn things around, and jump in at the right time. No, making money with penny stocks is certainly not impossible, but you must know what youre doing, and monitor your investments closely at all times.

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You want the big money right now, so why wait? Buy a lottery ticket today and find out the result tonight. This is the first gambling arena that people frequent to try to end their money troubles. People earning under $100,000 are 2.5 times more likely to frequently buy lottery tickets as people that earn more than $100,000. No big surprise here, middle to low income earners find lottery tickets a cheap and easy way to hit big money on the way home from work. This is not a form of gambling that I would recommend as your chances of winning have been equated to being struck by lightning 25 times.

Only half of the American population has ever tried their hand at the next gambling arena: the stock market or mutual funds. You might have a retirement account with a couple mutual funds, or you could be trading in and out of stocks every few days. But this is where middle income earners go to gamble and try to get rich. The average stock portfolio is a whopping $34,300. Any stockbroker will tell you that if you are lucky and have 50 years, you may be able to own a portfolio worth a million dollars. When there is a sharp increase in the stock market, the amateurs rush in and try to make it a profession; but get financially hurt in the end. In the late 1990s it was day-trading. I personally know successful short-term traders, but 97% of them quit after losing most/all of their trading account in a short amount of time. This is not a gambling arena that Id recommend to build your wealth: whether short-term or long-term stock investing. (The high income earners have an extra flavor of this type of investment called a hedge fund, but these funds offer a few spectacular gains but more frequent financial implosions.)

People in the high income bracket have two gambling arenas that they employ to get richer: real estate and private placement memorandums. The beauty of investment real estate is that it can lower your taxes by taking a deduction for depreciation. This feature is not available to lottery tickets, slot machines, or mutual funds. In this gambling arena, there is land development, residential rentals, apartments, and commercial property of various types. The high income earners buy properties with a high monthly income, reduce their taxes with its depreciation, and hope for a large rise in the property value over time. But as I said before, when there is a price run-up, the amateurs rush in and ultimately get financially hurt. In 2002-2005, the rage caught on in preconstruction condominiums (the cheapest way to get into real estate). The term flipping condos became prevalent and masses of beginning investors have lost a lot of money because they werent educated about real estate investing. But professionals in the industry continue to earn money because they buy based upon monthly income, and speculative gains are just the extra icing for the investment. The second casino that high income earners use is PPMs (private placement memorandums). These are investments that are illegal for people earning under $200,000, or have a net worth under $1 million. (The government only wants sophisticated investors who can afford to lose their money entering these unregulated investments.) These investments are normally created by small business owners that need more money to expand, so they are offering part of the ownership of their company with a higher than average rate of return. Conservative real estate offer the best odds of success for any of the gambling arenas; and then when you have built up enough money, you can begin with some conservative PPMs.

Where do you want to focus your getting richer effort? There is no risk free path to follow, but maybe this will help you decide: What is the probability that you will successfully pick the winning lottery numbers today? The joke youll hear is that losing money on lottery tickets is a tax on the mathematically challenged. What is the probability that youll buy the stock of a runaway company before the professionals run the price up? What is the probability that you can find a valuable real estate transaction? It is my opinion that educating yourself about real estate offers the best chance for sharply increasing your financial fortune.

[There is one more popular gambling arena available to people with internet/computer/technical skills, and that is joining a start-up company that is eventually taken public. The odds of success are only 7 times better than the lottery, about 1 in 6 million.]

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The performance report of our e-mini S&P Trading System Coin Collector shows an average profit per trade of $36 over the past 733 trades:

In between March 14-21, 2005 the system was over performing and we realized $963 in profits with 17 trades. These yields to an average profit per trade of $57, way above the “expected” average profit of $36 (see below):

When daytrading system you have to keep in mind that you are working with averages:

If your back testing shows an average profit per trade of $36 then you can be almost sure that the system will not suddenly jump to $57 average profit per trade.
In trading we have good weeks and bad weeks. Losses are part of our business. After a slow week there might be an extraordinary week. After a winning streak we will realize a loss.

Looking at the performance of that week a correction was inevitable. And it happened: Tuesday, March 22nd, we realized a loss of $712.50.

Such a loss hurts. You quickly forget all the nice profits of the past week and focus on the loss. You may start questioning your system and think that it stopped working, and so you stop trading. You start looking around for the next system. You don’t give the system a chance to come back to “normal”. You see an extraordinary week like the week from March 14 – 21, 2005 and think that you will continue making profits like this forever.

When reality hits you, you stop believing. But take a look what happened after the loss.

Here’s the performance report of the 2 weeks combined: The “good” week and the “bad” week with the loss of $712.50:

Now take a look at the first graphic with the performance the system is supposed to make.

We are right on target!

The average profit is back to normal, and so are the winning percentage and the profit factor.

Within two weeks the daytrading system normalized itself. That’s exactly what you should expect from a robust trading system.
The next step is finding a market that’s suitable for you.
Selecting a market
You can trade stocks, forex and futures.
Depending on your account size “stocks” might not be an option for you, since you need at least $25,000 in your account to daytrade stocks.
Forex trading is very popular, but if you are new to trading I must warn you:
The Forex markets are extremely volatile, and you can easily make (or lose) thousands of dollars in a day. Many Forex brokers offer “free quotes and charts” and “no commissions”, but keep in mind that nothing is for free: You are paying a spread, i.e. you can NOT buy a currency and immediately sell it for the same amount. It’s like at the exchange booths that you know from your holidays: You exchange $100 into 80 Euro, but when you change the 80 Euro back into dollars, you only receive $96.
Same when trading Forex: You are paying at least 2 “pips”. This amounts approx. $20, depending on the currency pair you’re trading. Another disadvantage of Forex trading is that you are NOT trading at an exchange: There is no “Foreign Exchange”. You are trading against your broker: If you are selling, then your broker is buying from you and vice versa. And that’s why your broker is giving you the quotes for free: He can basically give you *any* quote since there are no regulations. Scary, isn’t it?
Let’s take a look at futures trading:
Futures markets are regulated and you pay very low commissions. They are highly leveraged, since you can trade the whole index worth $66,500 with an account as small as $500. So you can achieve an enormous leverage of 130:1. There are many advantages, especially if you’re trading the index futures:
Index Futures are traded electronically and you can enter the orders through your computer, without ever calling a broker.
You are getting very low commissions. That’s important to keep your costs down and increase your bottom line.
You have a high leverage of up to 130:1.
You are trading some of the most liquid and popular markets in the world, hence you will experience little or no slippage.
Depending on your broker you might get quotes and charts for free.
My recommendation:
If you’re new to trading I strongly recommend starting with the futures markets. It’s way easier than you might think, and if you follow this guide then you’ll have no problem getting started in futures trading.

Selecting a timeframe
Let me be brief on selecting a timeframe, since you’ll figure this out very soon:
When you select a smaller timeframe (less than 60min) your average profit per trade is usually relatively low. On the other hand you get more trading opportunities. When trading on a larger timeframe your profit per trade will be bigger, but you will have fewer trading opportunities.
Smaller timeframes mean smaller profits, but usually smaller risk, too. When you are starting with a small trading account, then you might want to select a small timeframe to make sure that you are not overleveraging your account.
Most profitable trading systems use larger timeframes like daily and weekly. These systems work, too, but be prepared for less trading action and bigger draw downs.
My recommendation:
Therefore I strongly recommend that you stick to smaller timeframes like 60min and below. In addition you shouldn’t hold any positions overnight in your first couple of weeks of trading, so stick to daytrading.
Selecting a trading style
Basically there are 2 different trading styles:
Trend-following
When prices are moving up, you buy, and when prices are going down, you sell.
Trend-fading (or counter-trend-trading)
When prices are trading at an extreme (e.g. upper band of a channel), you sell, and you try to catch the small move while prices are moving back into normalcy. The same applies for selling.
Most indicators that you will find in your charting software belong to one of these two categories: You have either indicator for identifying trends (e.g. Moving Averages) or indicators that define overbought or oversold situations and therefore offer you a trade setup for a short term swing trade.
So dont become confused by all the indicators and trading approaches that are out there. Make sure you understand what the indicator is measuring and what category it belongs to.
Here are some examples of popular trading approaches:
Trend-following
oCrossover of Moving Averages
oTurtle Trading
oParabolics (e.g. SAR)
.
Trend-fading
oOverbought/Oversold Oscillators
oBollinger Bands and Channels
oTurtle-Soup Trading
My recommendation:
In my opinion trend-fading is actually one of the best trading styles for the beginning trader to get his or her feet wet. By contrast, trend trading offers greater profit potential if a trader is able to catch a major market trend of weeks or months, but few are the traders with sufficient discipline to hold a position for that period of time without getting distracted.
Detailing Your Trading Plan
By now you know how much money you want to make, how much you are willing to risk, what market you are going to trade in which timeframe, and what trading style you’ll use. In this section you will learn how to detail your plan by adding specific rules for entries and exits.
Entry Rules
Entering the market is easy. You have the following possibilities:
You can enter the market based on certain conditions,
e.g. prices move above the previous day high or
prices cross the 100-day moving average.
You can enter at a certain time,
e.g. you are ALWAYS entering the market at the open or
you are entering at noon.
A combination of both,
e.g. you are entering if prices cross above the 100-day moving average, but only between 8:30am and 12:00pm.
There are dozens of books, magazines and websites that offer you countless entry techniques. But as a famous trader once said: “The exit is more important than the entry”. So let’s take a look at exit rules.
Exit Rules
Lets keep it simple here, too: There are two different exit rules you want to apply:
Stop Loss Rules to protect your capital and
Profit Taking Exits to realize your profits
Both exit rules can be expressed in four ways:
A fixed dollar amount (e.g. $1,000)
A percentage of the current price (e.g. 1% of the entry price)
A percentage of the volatility (e.g. 50% of the average daily movement) or
A time stop (e.g. exit after 3 days)
I usually dont recommend using a fixed dollar amount, because markets are too different. For example, natural gas changes an average of a few thousand dollars per day per contract; however, Eurodollars change an average of a few hundred dollars a day per contract. You need to balance and normalize this difference when developing a trading system and testing it on different markets. Thats why you should always use percentages for stops and profit targets (e.g. 1% stop) or a volatility stop instead of a fixed dollar amount.
A time stop gets you out of a trade if it is not moving in any direction, therefore freeing your capital for other trades.
Other Elements
Entry and Exit Rules are the basic elements of your trading plan, and if you have a rather small account then that’s all you need to get started.
Later you want to add additional elements like
Money Management
How much money are you going to risk per trade?
When do you increase the contract size?

Diversification
How many contracts will you trade with ONE day trading strategy?
When will you add a second strategy? What kind of strategy?
In which markets will you diversify?

Payouts
When will you start withdrawing money from your trading account?
How much?
All these elements are becoming important when your account size grows, but in the beginning you can omit these elements to make it easier.
Authors name
Markus Heitkoetter
Author’s Info:
Markus Heitkoetter is a 19 year veteran of the markets and the CEO of Rockwell Trading. For more free information and tips and trick how to make consistent profits with online daytrading, visit his website www.rockwelltrading.com.

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Discovered while day trading in 1989 by Nick Stott, a successful bond trader in the financial markets, the ‘Camarilla’ equation uses a truism of nature to define market action – namely that most time series have a tendency to revert to the mean.

The equation produces 8 levels that are meant to predict these reversal points allowing the trader to profit from them. The equation uses nothing more than the previous trading days open, close, high and low levels and some interesting mathematics to produce these supports and resistances.

Trading the Signals

Now these levels are numbered L1-4 for the supports and H1-4 for the resistances but it is really the L3, L4, H3 and H4 ones that are most important.

When the price level reaches the H3 level the theory behind the Camarilla Equation says that there is a strong resistance at this point and that a SHORT trade should be made with a stop loss at the H4 level.

Conversely, when the price drops to the L3 level there is a strong support and a LONG trade is the recommendation with a stop loss at the L4 level.

Breakout Possibilities

While the H4 and L4 levels should normally be reserved for setting stop losses on the above trades, occasionally there will come a point when these points are broken through. If this breakout is maintained for a significant amount of time and the price is still on the move then a LONG or SHORT trade should be entered respectively.

These trades are not so common but could provide massive profits (or so the Camarilla Equation suggests)

Choosing entry point with Camarilla Equation

There are two entry points that you may like to consider when using the Camarilla Equation. Firstly you could trade as soon as the market reaches either the L3 or H3 level and go AGAINST the current trend but there is more of a danger that the trend will continue and you will lose out if this is your preferred method.

The alternative is to wait after the market has broken the L3 or H3 level until the reverse actually occurs and enter the trade just as the market passes the respective level once again. This allows you to trade WITH the trend which should prove a safer option.

So does it Work?

If you are interested in whether or not the Camarilla Equation provides a viable trading method then you may wish to follow my experiment which is testing the given levels for the FTSE 100, Dow Jones and DAX 30 stock markets.

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Most investors can enjoy the best of both worlds, by setting aside some of their money for day trades, and the balance of it for longer-term investment. Because day trading tends to be more volatile, and can result in quick profits or fast losses, most of us would be advised to put only as much of our investment capital as we can comfortably afford to lose, into this kind of trading strategy. That way, even if you encounter a worse case scenario, it will not adversely impact your overall financial situation.

There are pros and cons to both styles of investing. Those who do day trades enjoy the fact that they can get in and out of the market quickly, and make money without waiting for the results. But any kind of stock market investment strategy requires research into the companies you decide to invest in, and research can take time to do. If you are buying and selling so fast that you dont have time to do adequate background analysis, day trading may not be a prudent approach.

Investing in companies that provide slow but steady returns is a time-tested approach to the stock market. In fact, most historical evidence supports the idea that if you buy quality stocks and hold them for long periods of time at least five years or more you will do very well in the stock market. For that reason, those who are young enough to have time on their side would probably be wise to buy some stocks and sock them away for retirement.

With most investments, it is usually best to diversify to minimize risk and maximize potential gains. One way to accomplish this in the stock market is to employ both strategies, and use a portion of your investment capital for short-term trades, while leaving another portion in long term investments. If one basket of investments doesnt do well, the other probably will. And if both do well, you will enjoy twice as much success.

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Day trading is not investing. The day trader’s time frame of analysis is rather short: one day. Their only intent is to exploit the stock’s intra-day price swings or daily price volatility. Unlike stock investors, day traders do not seek long-term value appreciation.

Stock volatility is generally a rule of the market rather than an exception. Most stock prices move up or down in any given day due to a variety of external factors. Even if the market is relatively calm, there are always stocks that are volatile. Day traders seek to identify a stock that has a trend and then go with that trend. “Trend is a friend” is a common motto among day traders. Day traders seek to pick up a relatively small stock movement, 1/8 or more on that stock. If day traders are trading a large block of shares (that is, 1,000 shares per trade), then day traders will profit $125 from a 1/8 price movement. Conversely, if a day trader acquired 1,000 shares and the trader was wrong, which also happens, then the day trader will lose $125 from a 1/8 price movement. Volatility is a double-edged sword.

For expensive stocks that trade for $100 or more, a 1/8 or 12.5 cents movement is such a small relative price change that it happens all the time. Consequently there are plenty of day trading opportunities. It is not common to see a day trader executing many, sometimes as many as 100, trades in a single day. On the other hand, an investor’s time frame is much longer. Investors seek a much larger price movement than 1/8 to earn the desired rate of return. That takes time.

In short, day traders seek to extract an income from intra-day price volatility by trading the stock frequently, while the investors seek a long-term capital appreciation.

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